‘Discouraged Workers’ Isn’t The Answer
The Bureau of Labor Statistics released February unemployment numbers on Friday. According to the BLS unemployment rate rose to 6.7% from a five-year low of 6.6%, both the number of unemployed person (10.5 million) and the unemployment rate changed little in February. The jobless rate has shown little movement since December, according to BLS. Over the year, the number of unemployed persons and the unemployment rate were down by 1.6 million and 1.0 percentage point, respectively.
The broader measure of unemployment, or the U-6 unemployment rate, including discouraged workers for February 2014 fell from 13.5% to 13.1%. However, it is interesting to note the independently produced Gallup True Unemployment Rate equivalent called the “Underemployment Rate” disagrees with both and claims it is at 17.5%, down from 18.6% in January. That’s a whopping 3.4% differential between Gallup and BLS on supposedly the same data!
There has been a lot of talk about the validity of the government generated unemployment numbers created by the U.S. Bureau of Labor Statistics (BLS) lately. (And not just on my FaceBook page!) Gallup looks at the Employment numbers rather than the Unemployment Rate because they are much more accurate. We’ve looked at Employment vs Unemployment and we’ve looked at U-6 (total labor force including those who’ve given up looking) vs. U-3 (those who are still actively looking). The U-3 unemployment rate is the commonly quoted one, this month at 6.7%. But the one problem is that all that data comes from the same government. If they are fudging the numbers how would we know? Unless as we’ve noted before there are inconsistencies between the Unemployment and Employment Charts. But at last we have an alternative source of information.
In an effort to determine the True Unemployment Rate the Gallup survey folks began doing their own survey on unemployment rates back in 2010. So we can compare Gallup’s results with the results the BLS publishes.
In this chart we can see that the Gallup numbers are occasionally higher than the BLS numbers but they were occasionally lower as well, so it is difficult to tell if the data is significantly different. At first glance they appear to track pretty well until the middle of 2013 when they started diverging drastically making you wonder what the heck is happening at BLS! In blue shows the BLS Adjusted numbers, red the BLS unadjusted and in green the Gallup numbers unadjusted.
In the past few months the BLS numbers seem to have taken a break from reality as they continue to fall while Gallup numbers are considerably higher - a 3.4% differential this month.
Although up until recently the difference wasn’t massive it does appear that the BLS is biased to the low side compared to the independently surveyed Gallup numbers. The average amount the BLS numbers come out below the Gallup numbers is roughly 0.206% (Difference Average) so in other words if the BLS says the unemployment rate is 7.0% on average Gallup would say the True Unemployment Rate was really 7.206%. But on three occasions recently August 2013, November 2013 and January 2014 the difference has been significantly more than 1% (i.e. 1.4% and 1.6% respectively).
There is also some evidence that a factor like Obamacare is causing a shift in the number of part-time employees (reducing the number of hours worked per employee) so the number of part-time workers necessary is increasing
Some possible explanations up until this point were that people had given up looking for work (became “discouraged workers”) and so they were no longer counted as unemployed under the standard BLS definition. This would of course make the BLS number look better but wouldn’t indicate an improving economy. However logical this possibility sounds, the data just does not hold up.